A-Level H2 Economics 3 — Questions and Answers
Question 1: What is the Lorenz curve used to measure?
- Economic growth
- Income inequality within a country (Correct answer)
- International trade patterns
- Government expenditure
Correct answer: Income inequality within a country
The Lorenz curve plots the cumulative share of income earned against the cumulative share of population. The further the curve from the 45° line, the greater the income inequality.
Question 2: What is 'structural unemployment'?
- Unemployment caused by economic recession
- Unemployment arising from a mismatch between workers' skills and the skills demanded by employers (Correct answer)
- Seasonal unemployment
- Unemployment in the public sector
Correct answer: Unemployment arising from a mismatch between workers' skills and the skills demanded by employers
Structural unemployment occurs when there is a mismatch between workers' skills and job requirements, often caused by industrial change, technological advances, or regional shifts in employment.
Question 3: What is the difference between regressive and progressive taxation?
- Both take the same percentage from all incomes
- Progressive tax takes a higher percentage from higher incomes; regressive tax takes a higher percentage from lower incomes (Correct answer)
- Regressive tax only applies to corporations
- Progressive tax is only for goods and services
Correct answer: Progressive tax takes a higher percentage from higher incomes; regressive tax takes a higher percentage from lower incomes
A progressive tax (e.g., income tax with rising rates) takes a larger percentage of income from higher earners. A regressive tax (e.g., GST) takes a larger percentage from lower income earners relative to their income.
Question 4: How does depreciation of the Singapore dollar affect its export competitiveness?
- Singapore exports become more expensive abroad, reducing competitiveness
- Singapore exports become cheaper in foreign currency, improving competitiveness (Correct answer)
- No effect on trade
- Exports and imports both become more expensive
Correct answer: Singapore exports become cheaper in foreign currency, improving competitiveness
When SGD depreciates, Singapore's exports cost less in foreign currency, making them more price-competitive internationally. Imports become more expensive, potentially worsening the trade balance if demand is inelastic.
Question 5: What is 'moral hazard' in economics?
- Unethical business practices
- When one party takes more risks because another party bears the cost or consequences (Correct answer)
- A type of market failure from information asymmetry
- When companies collude to set prices
Correct answer: When one party takes more risks because another party bears the cost or consequences
Moral hazard occurs when one party takes on more risk because the costs of that risk are borne by another party — e.g., insured people taking less care because insurance covers losses.
Question 6: What is Singapore's approach to managing its economy, described as 'pragmatic'?
- Complete free market with no government intervention
- A mixture of market forces with strategic state intervention in key sectors, guided by what works (Correct answer)
- Full central planning
- Protectionist trade policies
Correct answer: A mixture of market forces with strategic state intervention in key sectors, guided by what works
Singapore's economic pragmatism involves allowing market forces to operate while the government strategically intervenes in sectors critical to national development — using GLCs, the CPF, and active industrial policy.
A-Level H2 Economics 3
What is the Lorenz curve used to measure?